Will Obama Tax the Banksters?

With his approval ratings dropping below fifty per cent, can it be long before President Obama looks across the pond for some advice on how an unpopular government can attempt to rally its supporters?

In a sop to public anger at greedy financiers paying themselves small fortunes a year after receiving big taxpayer bailouts, the British government today announced it would tax bank bonuses at a rate of fifty per cent. The banks that issue the bonuses would pay the new tax, and the recipients would also be taxed at the regular rate of income tax, which for high earners is fifty per cent. In effect, this means all bank bonuses above about forty thousand dollars would be taxed at a punitive rate of seventy-five per cent.

As Alistair Darling, the Chancellor of the Exchequer—that’s Britspeak for Treasury Secretary—explained to the House of Commons, there is economic logic as well political calculus behind this move. Most of the profits the banks are making are derived, in some way, from the government efforts to bail out the financial sector. These rescue efforts, which include artificially low interest rates, official debt guarantees, and various lending programs, were designed to help the banks rebuild their capital, much of which was wiped out when the real-estate market collapsed. But rather than hoarding the profits they are making, many banks are paying out large sums to their staff in the form of annual bonuses. At a time of mass unemployment, this is generating outrage.

“There is no bank which has not benefited, either directly or indirectly, from [government] help,” Darling said. “This should be a time for banks to rebuild their capital base and become stronger. However, there are some banks who still believe their priority is to pay substantial bonuses to their already high-paid staff. So I am giving them a choice. They can use their profits to build up their capital base. But if they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.”

I would wager a substantial sum that some of Obama’s political advisers are pressing him to copy Darling’s populist move, which the opposition Conservative Party, traditionally the party of big business, is supporting. (It doesn’t have much choice. Bankers are so unpopular in the U.K. that some of them are forced to lie about their professions when they go to pubs or restaurants.)

The question now is whether the President and his economic advisers will sign on. If I were Tim Geithner or Larry Summers I certainly would. As of now, both of them are widely regarded as shills for Wall Street. Whether justified or not, this public perception is handicapping the Administration’s efforts to reform the financial sector and undermining its claim to represent change. What better way for the Administration to show its independence from the moneymen than by spoiling their Christmas dinners with the announcement of a surtax on their beloved bonuses?